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Leading Independent Investment Research

Morningstar, Inc.

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Thematic (Sector/Industry)

Colombia Semiconductors and semiconductor equipment / Thematic (Sector/Industry)

<div class="content-highlight"><h2>Nvidia and Intel Will Both Be the Winners in Autonomous Driving</h2></div><hr><p>As we contemplate the future of artificial intelligence, or AI, the most topical and relevant application seems to be autonomous driving, or AD. At least this is what carmakers, Tier 1 suppliers, and even many leading semiconductor firms would have one believe. Today, cars are already seeing exponential increases in semiconductor content—both for mission-critical functions and entertainment purposes. By 2025, we estimate the AD opportunity for <a href="https://www.smartkarma.com/entities/5891" target="_blank" data-smartkarma-citation="entities:5891:1">Nvidia Corp (NVDA US)</a> and <a href="https://www.smartkarma.com/entities/16764" target="_blank" data-smartkarma-citation="entities:16764:1">Intel Corp (INTC US)</a> to be $7 billion, implying a 51% compound annual growth rate.</p><p>Concerning self-driving cars, there are two schools of thought. The most popular and overhyped solution, in our view, is the development of a fully functional platform or perfectly turnkey solution that can be plugged into a car with requisite sensors to "see" its surroundings and ultimately perform full Level 5, or "eyes-off," autonomy. An alternative, more economically feasible, route is incrementally building on top of existing capabilities such as advanced driver-assistance systems, or ADAS, to approach and ultimately reach AD in a more systematic and scalable fashion.</p><p>At the forefront of these trends are leading processor vendors, including Nvidia and the Intel-Mobileye duo. Nvidia dominates the GPU landscape and has leveraged its expertise in PC-related graphics into new AI-related applications such as AD. The firm boasts its Drive PX platform as a fully functioning AD computer that is currently being used across 370 automakers, original-equipment manufacturers, and others in research and development settings. Meanwhile, Intel acquired Mobileye for $15.3 billion to jump-start its efforts on the automotive track, as there are roughly 24 million cars on the road today with Mobileye chips. Despite Nvidia's early mind-share traction among market participants, we don't foresee a winner-take-all market in AD platforms, and think Intel-Mobileye is also well-positioned to carve a meaningful portion of this opportunity. Consequently, Nvidia still appears significantly overvalued, in our view, while Intel is modestly undervalued.</p><hr><h2>Key Takeaways</h2><ul><li>By 2025, we calculate the Level 2 through Level 5 AD market opportunity (which implies any AD from "hands off" to fully driverless vehicles) for Nvidia and Intel-Mobileye to be $7 billion, implying a 51% CAGR from our 2017 market estimate derived from Nvidia and Intel's automotive revenue.</li><li>Given the nascent status of the current AD hardware market, we assume Level 4/5 will be split roughly evenly between the two firms by 2025, while Intel-Mobileye will build on its ADAS leadership to be the primary solution for Level 2/3 systems. We believe the consensus view is that Nvidia will be the sole winner in AD, and thus, we like the risk/reward of Intel today.</li><li>The benefits of autonomous driving are well-understood (fewer accidents and more free time for drivers); however, the timeline for commercialization has been oversold, in our view. Nevertheless, semi and full-autonomous platforms will still go into vehicles in the near future, though the software may remain unenabled due to regulatory concerns.</li><li>Both Nvidia and Intel have positioned themselves to be major players in the AD platform market, which includes the advanced semiconductors that will perform the vital aspects of full autonomy. Nvidia and Intel boast economic moats stemming from cost advantages and intangible assets, that should grow stronger as automotive-related chips become a larger part of each broader business.</li><li>Sensing, planning, and acting are the three main functions of an AD system, with a bevy of players vying for each. Mobileye is a sensing leader focused on building a comprehensive solution, while Nvidia intends to commercialize a turnkey solution that performs the latter two functions.</li><li>We view the key criteria for successful AD solutions as performance, cost, and safety. Nvidia and Intel-Mobileye are poised to deliver on each of these criteria. We are skeptical that other processor vendors, such as <a href="https://www.smartkarma.com/entities/969" target="_blank" data-smartkarma-citation="entities:969:1">Qualcomm Inc (QCOM US)</a>, <a href="https://www.smartkarma.com/entities/9801" target="_blank" data-smartkarma-citation="entities:9801:1">NXP Semiconductors NV (NXPI US)</a>, <a href="https://www.smartkarma.com/entities/18804" target="_blank" data-smartkarma-citation="entities:18804:1">Texas Instruments Inc (TXN US)</a>, and others will emerge as viable third threats to the Nvidia-Intel duo.</li><li>Nvidia is the first mover in AD, with its Drive PX module used in more than 370 partnerships. The Drive PX features a host of powerful GPUs and other chips that exhibit impressive performance metrics.</li><li>Despite its initial advantage, we do not view the AD platform market as a foregone conclusion, given the rapid pace of innovation within technology and our concerns regarding GPU power consumption.</li><li>We think the Mobileye acquisition grants Intel a seat at the automotive table for AD, and despite a high price tag, will prove to be worthwhile longer term given Mobileye's large existing customer base.</li><li>We view Mobileye's approach to AD very favorably, as it looks to incrementally build upon existing products to enable full autonomy, working from ADAS up to Level 5 in a methodical manner.</li><li>Given the nascent status of the current AD hardware market, we assume Level 4/5 will be split roughly evenly between the two firms by 2025, while Intel-Mobileye will build on its ADAS leadership to be the primary solution for Level 2/3 systems.</li><li><a href="https://www.smartkarma.com/entities/21685" target="_blank" data-smartkarma-citation="entities:21685:1">AUDI AG (NSU GR)</a>'s zFAS centralized architecture features an Nvidia Tegra chip and Mobileye EyeQ 3 vision processor, with each chip performing differing functions for Level 3 autonomy, illustrating an early example of what a fully autonomous solution would look like (and why it won't necessarily be winner-take-all).</li><li>Similarly, <a href="https://www.smartkarma.com/entities/20279" target="_blank" data-smartkarma-citation="entities:20279:1">Tesla Motors Inc (TSLA US)</a>'s autopilot also showcases how solutions can be swapped out (Nvidia replacing Mobileye), illustrating the potential for disruption in AD technology.</li><li>Nvidia is today's leader in the AD hardware space, as the firm has successfully leveraged its GPUs for PC graphics into AI and AD. However, we think the market has priced in overly ambitious expectations for the firm. While we expect Nvidia's Drive PX to be prominent in future AD systems, we view current levels as significantly overvalued relative to our $120 fair value estimate.</li><li>Intel is the dominant player in server and PC CPUs, and the firm has built a broad portfolio of offerings via acquisition and internal development. These include FPGAs, custom chips, memory solutions, and vision processors from Mobileye. The latter will help Intel accelerate its revenue in automotive, and we view shares as modestly undervalued relative to our $56 fair value estimate.</li></ul><hr><p><em>Analyst: Abhinav Davuluri</em></p>

Nvidia and Intel Will Both Be the Winners in Autonomous DrivingAs we contemplate the future of artificial intelligence, or AI, the most topical and relevant application seems to be autonomous driving, or AD. At least this is what carmakers, Tier 1 suppliers, and even many leading semiconductor firms would have one believe. Today, cars are already seeing exponential increases in semiconductor content—both for mission-critical functions and entertainment purposes. By 2025, we estimate the AD opportunity for Nvidia Corp (NVDA US) and Intel Corp (INTC US) to be $7 billion, implying a 51% compound annual growth rate.Concerning self-driving cars, there are two schools of thought. The most popular and overhyped solution, in our view, is the development of a fully functional platform or perfectly turnkey solution that can be plugged into a car with requisite sensors to "see" its surroundings and ultimately perform full Level 5, or "eyes-off," autonomy. An alternative, more economically feasible, route is incrementally building on top of existing capabilities such as advanced driver-assistance systems, or ADAS, to approach and ultimately reach AD in a more systematic and scalable fashion.At the forefront of these trends are leading processor vendors, including Nvidia and the Intel-Mobileye duo. Nvidia dominates the GPU landscape and has leveraged its expertise in PC-related graphics into new AI-related applications such as AD. The firm boasts its Drive PX platform as a fully functioning AD computer that is currently being used across 370 automakers, original-equipment manufacturers, and others in research and development settings. Meanwhile, Intel acquired Mobileye for $15.3 billion to jump-start its efforts on the automotive track, as there are roughly 24 million cars on the road today with Mobileye chips. Despite Nvidia's early mind-share traction among market participants, we don't foresee a winner-take-all market in AD platforms, and think Intel-Mobileye is also well-positioned to carve a meaningful portion of this opportunity. Consequently, Nvidia still appears significantly overvalued, in our view, while Intel is modestly undervalued.Key TakeawaysBy 2025, we calculate the Level 2 through Level 5 AD market opportunity (which implies any AD from "hands off" to fully driverless vehicles) for Nvidia and Intel-Mobileye to be $7 billion, implying a 51% CAGR from our 2017 market estimate derived from Nvidia and Intel's automotive revenue.Given the nascent status of the current AD hardware market, we assume Level 4/5 will be split roughly evenly between the two firms by 2025, while Intel-Mobileye will build on its ADAS leadership to be the primary solution for Level 2/3 systems. We believe the consensus view is that Nvidia will be the sole winner in AD, and thus, we like the risk/reward of Intel today.The benefits of autonomous driving are well-understood (fewer accidents and more free time for drivers); however, the timeline for commercialization has been oversold, in our view. Nevertheless, semi and full-autonomous platforms will still go into vehicles in the near future, though the software may remain unenabled due to regulatory concerns.Both Nvidia and Intel have positioned themselves to be major players in the AD platform market, which includes the advanced semiconductors that will perform the vital aspects of full autonomy. Nvidia and Intel boast economic moats stemming from cost advantages and intangible assets, that should grow stronger as automotive-related chips become a larger part of each broader business.Sensing, planning, and acting are the three main functions of an AD system, with a bevy of players vying for each. Mobileye is a sensing leader focused on building a comprehensive solution, while Nvidia intends to commercialize a turnkey solution that performs the latter two functions.We view the key criteria for successful AD solutions as performance, cost, and safety. Nvidia and Intel-Mobileye are poised to deliver on each of these criteria. We are skeptical that other processor vendors, such as Qualcomm Inc (QCOM US), NXP Semiconductors NV (NXPI US), Texas Instruments Inc (TXN US), and others will emerge as viable third threats to the Nvidia-Intel duo.Nvidia is the first mover in AD, with its Drive PX module used in more than 370 partnerships. The Drive PX features a host of powerful GPUs and other chips that exhibit impressive performance metrics.Despite its initial advantage, we do not view the AD platform market as a foregone conclusion, given the rapid pace of innovation within technology and our concerns regarding GPU power consumption.We think the Mobileye acquisition grants Intel a seat at the automotive table for AD, and despite a high price tag, will prove to be worthwhile longer term given Mobileye's large existing customer base.We view Mobileye's approach to AD very favorably, as it looks to incrementally build upon existing products to enable full autonomy, working from ADAS up to Level 5 in a methodical manner.Given the nascent status of the current AD hardware market, we assume Level 4/5 will be split roughly evenly between the two firms by 2025, while Intel-Mobileye will build on its ADAS leadership to be the primary solution for Level 2/3 systems.AUDI AG (NSU GR)'s zFAS centralized architecture features an Nvidia Tegra chip and Mobileye EyeQ 3 vision processor, with each chip performing differing functions for Level 3 autonomy, illustrating an early example of what a fully autonomous solution would look like (and why it won't necessarily be winner-take-all).Similarly, Tesla Motors Inc (TSLA US)'s autopilot also showcases how solutions can be swapped out (Nvidia replacing Mobileye), illustrating the potential for disruption in AD technology.Nvidia is today's leader in the AD hardware space, as the firm has successfully leveraged its GPUs for PC graphics into AI and AD. However, we think the market has priced in overly ambitious expectations for the firm. While we expect Nvidia's Drive PX to be prominent in future AD systems, we view current levels as significantly overvalued relative to our $120 fair value estimate.Intel is the dominant player in server and PC CPUs, and the firm has built a broad portfolio of offerings via acquisition and internal development. These include FPGAs, custom chips, memory solutions, and vision processors from Mobileye. The latter will help Intel accelerate its revenue in automotive, and we view shares as modestly undervalued relative to our $56 fair value estimate.Analyst: Abhinav Davuluri

Automotive Chipmakers in the Fast Lane —Destination: High-Speed Growth